It’s Hard To Estimate Highly Improbable Things Like Earthquakes
Some have hoped that AI would provide reliable help with predicting They have been disappointedInvestors often overreact to both good and bad news. When a company’s quarterly earnings turn out to be slightly below forecasts, its stock price might plunge 20 percent or more. Thus, when theoretical models of the stock market models assume that price changes conform to a bell-shaped curve of normal distribution, that assumption is more convenient than credible. Another inconvenient truth is that many investors are prone to chasing trends up or down. After a stock’s price has gone up, they rush to buy, which pushes the price even higher. When these two realities meet head-on, stock returns are sometimes more extremely good or bad than would be true of a normal distribution. On October 19, 1987, the S&P 500 Read More ›
